Study of pension reform costing Pennsylvania taxpayers more than $1 million

As Pennsylvania lawmakers continue to debate pension reform, the meter is running.

Last month, the Corbett administration renewed a contract with Milliman Inc., an actuarial accounting firm based in Seattle, and now plans to spend more as much as $1.1 million for actuarial services. The administration has paid $900,000 to Milliman since 2012 for actuarial analysis of various efforts to change the state’s public pension systems, but the renewed contract says “changing circumstances and changing needs” required more actuarial work.

THE COST OF REFORM: Each new plan for changing the state pension system requires actuarial analysis by the administration, the General Assembly and the pension plans themselves. That doesn’t come cheap.

“They were brought on to do the actuarial analysis of the governor’s pension reform plan and provide analysis for all the proposals that are out there,” said Jay Pagni, Gov. Tom Corbett’s spokesman.

The administration initially contracted with Milliman in August 2012, then renewed the contract in February 2013 and again in April 2013. The latest renewal was signed last month.

Pennsylvania’s two major pension funds — the State Employees Retirement System, or SERS, and the Public School Employees Retirement System, or PSERS — are a combined $49 billion in the red after years of underfunding by the state and investment losses during the recession.

But each time a new proposal surfaces in the Legislature or gets produced by the governor’s office, the actuaries go to work —and they don’t come cheap.

Under the terms of the contract with Milliman, the administration is paying up to $419 per hour.

Rick Dreyfuss, a retired actuary who now studies pension issues for the Manhattan Institute, a conservative think tank, said the hourly fees being paid by the administration were “well outside any reasonable norms,” based on his experience in the field.

Since the administration is looking for ways to achieve short-term pension savings by underfunding the plans, Dreyfuss said he worries the added expense of the actuarial fees won’t result in serious changes to the underlying problems in the pension systems.

“We are spending $1.1 million to compute how to put less money into already underfunded plans in the name of reform,” he said.

Both pension funds have their own contracts with actuarial firms, but those costs are lower than what the administration is paying.

During the past three fiscal years, PSERS spent nearly $1.5 million on actuarial fees. PSERS contacts with New York-based Buck Consultants.

Eric Boehm is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed listicle. Follow him on Twitter @EricBoehm87 and reach him at [email protected]